Homeownership is one of the most prioritized fantasies in India. You may also have this inherent feeling. However, when opting for a home loan, you must be fully aware of the charges the lender applies throughout the loan approval and repayment process.
While you’re concerned about managing interest rates and EMIs regarding home loans. You shouldn’t avoid the additional charges associated with the home loan. Your homeownership journey becomes more convenient when you have enough understanding of the various costs involved in the home loan.
Here, we compiled a list of charges applied by the lender (apart from interest rates and EMIs) related to your home loan journey.
- Processing Fees
The lender (financial institutions such as Banks or NBFCs) applies this fee once for processing or submitting your home loan application. You typically find variations in different lenders’ processing fees depending on your income, profile, and loan type, which features as a “percentage of the loan amount” format. This fee is non-refundable and generally ranges between 0.5% and 3% of the loan amount.
For some banks or NBFCs, any particular festive season or special occasion determines the processing fee. This fee is generally levied for tasks such as verifying your property papers, checking your credit history, studying your financial statements, and examining your application.
- Part Prepayment Charges or Foreclosure Charges
Part prepayment and foreclosure charges are levied by the lender when you want to prepay a part of your loan amount over and above your EMIs and the full loan amount before your scheduled term, respectively. The bank and the remaining period of the loan may have an impact on these charges.
However, what type of interest rate you’re availed determines whether you have to pay or not to pay these charges. When you’re at a floating rate, the prepayment charges don’t belong to you. The same is true for foreclosure charges, as per the RBI regulations.
When you opt for dual rate home loan, you have to pay part prepayment charges only for the fixed interest rate period, not when pursuing a floating interest rate. For foreclosure charges on a fixed interest rate, it’s up to lenders whether they want to levy this or not. Keep in mind that foreclosure of the loan account is prohibited by certain lenders until a certain number of EMIs have been repaid.
- Late Payment Penalties and EMI Bounce Charges
The late payment penalties are levied by the lender when you don’t pay the EMI on time or before the due date. EMI bounce charges are a result of insufficient funds in your bank account, which leads to EMI cheque bounce and, ultimately, EMI payment failure. For each bounce, there is a one-time bounce charge you have to pay as a penalty.
- Legal Fees
The lender levies this fee to cover the expense of legal firms or lawyers that they consult for checking the title of the property, along with records of past ownership and other document verifications. It fluctuates according to the location and intricacy of the property. However, the legal cost might not be charged for properties that the bank has previously approved.
- Valuation Fees
When you opt for a home loan, the lender estimates the property’s market value through an inspection for the loan approval. Since a third party is involved in this procedure, you will be responsible for paying this valuation fee. It varies with each bank and is often determined by the property’s value.
- Insurance Costs
Insurance costs are levied on your home loan insurance. Again, the insurance cost depends on each financial institution’s terms and conditions and your selected insurance policy. The amount of the premium varies depending on the insurance provider, loan amount, and loan term. The premium cost will decrease if your tenure does.
- Conversion Fees
These are the fees of converting your home loan from one benchmark rate to another (fixed home loan to floating home loan). When you pursue a home loan on your previously allotted benchmark rates, such as interest rates (floating & fixed), Repo Rate Linked Rate, and MCLR (Marginal Cost of Funds based Lending Rate. The conversion fee is all about converting your allotted benchmark rates to another one with the same bank. The charges related to this vary from one financial institution to another.
- Miscellaneous Charges
Apart from the aforementioned charges, an active home loan encompasses different charges such as:
- Stamp Duty and Registration Charges — Government fees vary state by state on property registration (buying the property)
- Penal Interest — For any default on paying EMIs or the loan itself
- Secure Fee — For offering and maintaining online services like payment systems and gateways
- Loan Servicing Charges — For managing your loan account
- Notary Fee — For NRI borrowers to notarize KYC (Know Your Customer) and POA (Power of Attorney) documents
- Indemnity Cost — For home loan borrowers to indemnify the lender from legal and financial risks related to the property
- Franking Fee — Stamp duty on the property agreement with the seller or the builder
- Charges for changing home loan tenure — For changing the original home loan tenure
- Loan Account Statement — Some banks or NBFCs may levy charges on providing a statement that includes details like EMIs, the total principal and interest paid, etc
- Recovery Charges — For home loan borrowers who default on EMI payments and trigger recovery action by the lender
- Memorandum of Deposit of Title Deed charges (MODT) — For home loan borrowers who submit their property documents to the lender as security, varies state to state.
References:
What are Home Loan Charges- Check Processing Fee & Charges
8 Common Home Loan Fees and Charges – Bajaj Finserv
Fees and Charges applicable while applying for a home loan - Tata Capital Blog
Common Home Loan Charges You Should Know About Before Applying
Home Loan Costs: Hidden Charges You Should Know
Latest Home Loan Processing Fees & Charges of Top Banks & HFCs
Top 10 Hidden Charges That Are Associated with Home Loans - Home Loan Stories | Kotak Mahindra Bank
List of charges you need to know while applying for a home loan in India - Piramal Finance
